Energy Valuation Insights

June 22, 2020 Special Topics Valuation Issues

Impairment Testing of Oil & Gas Reserves

2020 Global Events Causing Significant Reserve Write-Downs

The oil & gas market and the energy sector as a whole have taken a beating and experienced unprecedented events due to the global impacts from the pandemic and international price wars. While the scale of the full economic effects from these events has yet to be seen, companies are having to question and consider the need for interim impairment testing on reserves. The purpose of this post is to help oil & gas companies discern whether they may need to make interim impairment assessments and to discuss the impairment testing process.

June 18, 2020 Special Topics

Mercer Capital’s Mineral Aggregator Valuation Multiples Analysis

Market Data as of June 2, 2020

Mercer Capital has its finger on the pulse of the minerals market. We have thoughtfully analyzed the corporate and capital structures of the publicly traded mineral aggregators to derive meaningful indications of enterprise value.  We have also calculated valuation multiples based on a variety of metrics, including distributions and reserves, as well as earnings and production on both a historical and forward-looking basis. Download our analysis here.

June 16, 2020 Valuation Issues

Hedging And Bank Retreats Complicate Royalty Aggregators’ Valuation

As the clouds begin to clear from the oil patch storm that began three months ago, management, analysts and investors are wondering what is going to happen next. Has the proverbial storm system passed? Is it time to venture out and rebuild, or are we still in the eye of the hurricane, with the back wall on its way? Both are possibilities.

June 12, 2020 Special Topics

Themes from Q1 2020 Earnings Calls

Part 2: Mineral Aggregators

In this post, we examine some of the most discussed items and trends from the Q1 2020 earnings calls, specifically those in the mineral aggregator space.

June 5, 2020 Special Topics

Themes from Q1 2020 Earnings Calls

Part 1: E&P Companies

In this post, we examine some of the most discussed items and trends from E&P companies’ Q1 earnings calls.

May 28, 2020 Mineral and Royalty Rights Valuation Issues

Royalties And Minerals: A New Market Is Emerging

The fact that valuations in the mineral and royalty space have decreased is not news at this point, but what is interesting is that this environment has changed a lot of things along the way.

May 11, 2020 Bankruptcy Current Events

2020 Commodity Prices Upend 2019 E&P Bankruptcies

The recent historic decline in oil prices has strained the balance sheets of E&P companies.  Whiting Petroleum Corporation, the first publicly traded U.S. E&P company to declare bankruptcy in 2020, announced its Chapter 11 reorganization process on April 1.  More are expected to follow.

Despite a much more benign commodity price environment of ~$50-$60/bbl in 2019, a number of E&P companies declared bankruptcy last year and have seen their reorganization processes derailed in 2020 as a result of low oil prices.

April 28, 2020 Current Events Valuation Issues

Uncharted Valuation Territory: What Is A Barrel Or An Acre Worth Today?

Times are tumultuous for the oil and gas industry. News earlier this month was met with no rise in West Texas Intermediate pricing at the time. It hovered around $20.00 per barrel. Last week it fell to the seemingly unconscionable negative territory. It was worse in other places. In Western Canada heavy select oil was around $4.50 per barrel and dropped to $0 last week. It went negative as well. World demand for oil has dropped somewhere between 20% and 35% by some estimations, and excess supply has been building for weeks.

Something must give, and something will. While global supply and demand imbalance has the industry scrambling in unseen territory, how does this convert to what upstream companies and reserves are worth amid the situation? Is it a 1:1 price to value change ratio? Depending on perspective, the answer is both simple and complicated.

April 14, 2020 Special Topics Uncategorized

Saudi Arabia, Russia, or the United States – Did One of the Players Blink?

It’s been a truly dizzying time in the rough-n-tumble world of oil production.  Like they say, if you miss a day, you miss a lot.  For now, it at least appears that someone may have just blinked.  The Trump administration seems to be on the verge of a truly historic deal to cut worldwide oil production and bring oil prices up to a modestly workable level.  And that with the U.S. not committing to forcing domestic producers to cut production levels but indicating that U.S. production would “naturally” decline without the government’s intervention. That coupled with a potential side-deal with Mexico to “cover” part of the production decrease that was being sought from that country, but that Mexico is unwilling to shoulder on its own. Will it work?  Will the deal be accomplished? Although an agreement was reached to reduce oil production in light of demand destruction caused by the coronavirus pandemic, oil markets appear to remain oversupplied.  Will OPEC+ and other nations agree to another deal to further reduce production?  Will U.S. production decline faster than anticipated due to low oil prices? Will the Texas Railroad Commission implement proration orders for Texas producers? All we can say is, stay tuned – and expect the unexpected.

April 6, 2020 Current Events Special Topics

1st Quarter 2020 Oil & Gas Industry Overview

In this post we examine the macroeconomic factors that have affected prices in this first quarter.